Southern Cross care workers suffer for greed

By This Is Money
Updated: 03:32 EDT, 9 June 2011

The latest victims of Blackstone's private equity heist at the Southern Cross care homes chain are 3,000 workers.

There is no business in the world which cannot be run more 'efficiently', as the jargon would have it.

But in the case of Southern Cross it is hard to believe that the previous Blackstone-chosen regime, out for quick profits, did not squeeze labour costs until the pips squeaked.

After all, it already had allowed some of the leases to be fixed to the maximum advantage of landlord NHP - which was also controlled by Blackstone.

It is difficult to blame Jamie Buchan, the chief executive who took over in 2009, for all that has gone wrong.

However, there are questions as to how relevant his previous career in consumer brands is to the caring business.

What is really disturbing is where the axe is falling. Most of the jobs will go among 'ancillary' staff. These are the people who keep the sheets clean and prepare the food for the elderly clients.

How it is going to be possible to maintain 'quality' without these essential services is hard to imagine.

Buchan is doing what all managers do when they are up against it, whether running care homes for the elderly, record shops or fashion chains. They cut staff, seek a break on the leases and beg the banks not to close them down.

The trouble is that while it may be sad when F W Woolworth disappears from the high street and the workforce suffers, it can never be as damaging as it is in the provision of care. Some 31,000 older people, many of whom will have sacrificed their own homes and/or savings, have been placed in peril.

Ruthless cost-cutting is not going to work, especially when the financial state of the landlords is so precarious too. Southern Cross needs to be placed in some kind of government custodianship, the rents suspended and NHP forced into administration if necessary.

If need be, the authorities should seize corporate and personal UK assets from Blackstone and its UK partners, sell them off and use the proceeds to create a trust fund for the residents.

Far from being sheltered from events, it would be piquant if Number 10's Jeremy Heywood, who helped bring this monstrosity to the markets, were tasked with disentangling the mess.

Dodging bullets

Anyone switching over by accident to the Treasury Select Committee hearings would be forgiven for thinking that the bankers live in a parallel universe.

Stephen Hester of 80% state-owned Royal Bank of Scotland seemed to think it was OK that taxpayer subventions may have leaked into the bonus pots of executives and traders.

Bob Diamond of Barclays clearly has convinced himself that his bank was a force for stability in the crisis. He looks to have forgotten the mad scramble for capital which saw it going cap-in-hand to Asian and Gulf states, diluting Barclays' capital by a third.

New Lloyds banker António Horta-Osório thinks that disgorging 600 branches will be sufficient a change to the structure of his bank to restore competition to the high street.

And when the new chairman of HSBC, Douglas Flint, was asked about 'separation' of casino from consumer banking he quickly became bogged down in accounting concepts.

The real case for separation of wholesale and retail banking is not just about ending 'too big to fail' and government subsidies. It is about focus.

The consumer, whether the individual or small business, is bottom of the pile in universal banks. The only way that any bank will ever give ordinary customers their full attention - rather than see them as milch cows for low-cost deposits and high charges - is if the consumer-small business arms are freed from their investment banker captors.

The Vickers Commission clearly is going to duck this issue, so it will be up to Vince Cable and the Government to keep up the pressure. If necessary it must use the tax system as a weapon.

Looking back

While on the subject of private equity pratfalls, spare a thought for the barons at Permira and Apax. Despite efforts to sell off a substantial chunk of fashion group New Look - which they have owned since 2004 - the markets have said 'no' twice.

Debacles like Debenhams have made investors deeply suspicious of private equity cast-offs. How right would-be shareholders were to be cautious - latest New Look results show same-store sales down 9.7% and operating profits halved at £98m.

This high street name could hang around in present ownership for a long time unless there is a trade buyer ready for a Sir Fred Goodwin-style 'mercy killing'.